Link CEO pay to company performance, say executives

May 6th, 2009 - 5:47 pm ICT by IANS  

KPMG New Delhi, May 6 (IANS) A majority of Indian firms believe that there is a need to evaluate the performance of the top management and board members and to link the salaries of chief executives to corporate performance, said a report released by auditing major KPMG Wednesday.
The report, ‘The State of Corporate Governance in India: 2008′, prepared on the basis of a corporate governance poll conducted by KPMG in India, said about 85 percent of the respondents said linking CEO remuneration to company performance would help improve corporate governance.

“CEO performance evaluation process should be introduced when the company is performing well. Evaluation of CEO performance sends a clear message that the CEO is accountable to the board and introduces a healthy balance of power,” the report said.

About 71 percent of executives said India did not have stringent penalty for poor corporate governance comparing to developed countries, the report said.

“There are a few areas where regulation could be strengthened such as limiting the number of directorships, mandating greater role for nomination committees in independent director appointments and instituting swift and stringent punishments,” said Neville Dumasia, executive director and head of governance, risk and compliance services at KPMG.

The poll has also highlighted that there is a need for greater empowerment of independent directors and measures to protect minority shareholder interests.

“So long as we continue to have a process wherein independent director appointments are largely driven by promoters, empowerment of independent directors and protecting minority shareholder interests will continue to be areas of concern,” said Richard Rekhy, chief operating officer and head of advisory services at KPMG India.

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